Author: Maria Shen, Electric Capital GP; Translation: Jinse Finance 0xxz

Why have I changed my mind about RWA recently? Quick summary.

LONG TERM

RWA will exist on the chain for a long time. I have always believed in this. The problem is how they are chained.

Why I am not bullish on RWA in 2018:

In 2018, a number of projects put real estate on-chain, tracked the price of US stocks for investors in other countries (e.g. giving the rest of the world access to the S&P 500, Apple stock, etc.), or created debt for real-world borrowers market.

But there are many obstacles:

Institutions and high net worth individuals make up most of the demand, but don't want these products on-chain because they don't lack access. Institutional players and wealthy individuals can already buy real estate, bonds and US stocks, so they won't change the process. There are only incremental benefits to putting these assets on-chain, and most of the real benefits (use of DeFi, composability, etc.) cannot be realized because the infrastructure does not exist yet.

Supply is sporadic and has negative self-selection. For example, the supply of real estate is usually a single building or a small group of buildings. Very few actually have a supply of it on-chain. Usually, the types of assets on the chain are assets that cannot be demanded in the real world, so there is a negative choice for the assets available on the chain. This further increases the difficulty of generating demand.

Legal issues/enforcement issues.

User experience and hosting issues. Most of the demand comes from non-crypto-natives. Encrypted UX and hosting is a big hurdle. Very few people have the ability to securely self-custody millions of assets.

Why now (optimistic about RWA):

The US interest rate environment changed from 0% to 5%. This means that (1) on-chain dollars want real-world yields, and (2) there is now off-chain demand for low APR loans.

DeFi has matured. We now have stablecoins, lending markets, and on-chain exchanges. The "theoretical" benefits of investing in real world assets from 2018 can now be realized.

Not all RWAs "succeed" this cycle. Simple, fungible assets like T-bills will come first. Long-term Treasury bonds are in the middle. Real estate will still lag and probably won't happen in the next few years.

User experience and hosting are no longer big issues. Crypto natives want real world gains. Organizations already familiar with on-chain operations want cheaper dollars. Both parties are familiar with cryptocurrencies, and the custody and user experience have improved a lot since 2018.

Cryptocurrencies will be the backbone of our global financial system. Today, it takes its first steps toward real-world assets.